FDI

VIETNAM: Vietnam’s Prime Minister, Nguyen Xuan Phuc, has requested for ministries and government agencies to remove and simplify at least 50 percent of business and investment conditions by 2019.

This follows the government’s resolution No. 19 which is aimed at improving Vietnam’s business environment and enhancing national competitiveness. To add to this, the Vietnamese government has also recently issued resolution No.139 which acts to approve the action plan on reducing financial expenses for enterprises, meaning that enterprises can now save up to a minimum of 10 percent of financial costs when investing in Vietnam.

According to the Minister Nguyen’s new directive, ministries and ministry-level agencies are required to report to the Prime Minister on a quarterly basis on the remaining number of business conditions and goods subject to specialised control. Clear justifications are also required in the event that there are changes to the number of business conditions and goods required for specialised inspection. Additionally, proposals on removing business conditions must also be substantial in order to produce new conditions that would be viable for businesses.

Based on Minister Nguyen’s vision, the lessening of business conditions will function as a key for economic growth and efficiency and the successful execution of this vision mandates strong collaboration from government leaders and ministers. Minister Nguyen has also strictly prohibited government agencies and ministries from establishing new business conditions or abusing specialised inspections.

According to Tran Hong Quang, director of the National Center for Socio-Economic Information and Forecast (NCIF), Vietnam has to shift towards an economic model that is more suited for Industry 4.0 due to a weakening of its current comparative advantage in natural resources and labour-intensive production. This is a view that is further reinforced by Luong Van Khoi, NCIF’s Vice Director, who said that Vietnam should focus on revising its economic model as part of the 2016 to 2020 economic reforms and aim towards improved social resources management, higher productivity and national competitiveness.

During this process, it is also essential for the country to identify sectors that have high potential and include them in the new FDI strategy. Citing a OECD research paper in which 66 million workers are projected to be replaced by machines in developing countries, Khoi further added that a number of jobs could potentially be replaced by robots such as factory work and industries such as manufacturing and processing risk being automated and will possess a lowered need for manpower.

In fact by 2025, about 42.8 million employees in Vietnam would be directly impacted by industry 4.0 and around 31 million will have to be retrained or change their jobs, Khoi continued.

Despite this, Le Huy Khoi, Head of the Industrial Policies Strategies Institute’s Study and Market Forecast Division under the Ministry of Industry and Trade, has commented that Industry 4.0 would open up more opportunities for Vietnam to grow its trade and industry sector and will encourage companies to improve their production methods, which will lead to cost reduction and improved productivity. Although, currently, awareness of industry 4.0 is still low among the business community and the technical infrastructure and technological applications have not been met. This was evidenced in a survey of 2,000 enterprises by Hanoi’s Small and Medium Enterprises Association, whereby 79 percent of the respondents indicated that they have not prepared for Industry 4.0, while another 55 percent are still attaining information regarding Industry 4.0 and 19 percent are currently working on Industry 4.0 plans. And of those surveyed, only 12 percent are executing Industry 4.0 plans.

To address those issues, Khoi has recommended that the government focus on education and work towards creating an awareness of Industry 4.0 through the dissemination of information in the political system, enterprises, business associations, research institutes and universities. Government agencies can also facilitate digital economy development, Industry 4.0 participation and application and the liberalisation of investment.

JAKARTA, INDONESIA: Indonesia is looking to launch an economic stimulus package that will promote the rupiah and thus, lead to domestic growth. This announcement comes ahead of the 2019 presidential election and is an acknowledgement of the country’s need for economic development. Opposition leader Prabowo Subianto has also announced that he will reduce corporate and personal income taxes in order to attract more investments if he wins the upcoming elections.

The impending stimulus package announced by the government include tax cuts from 2019 onwards for exporters of commodities in the mining, plantation, forestry and fishery sectors who are able to retain their export revenues in the domestic banking system. It will also include a tax holiday for two industrial sectors – agriculture-based manufacturing and digital industry – and will encompass a relaxation of the country’s Negative Investment List for some priority sectors.

Finance Minister Sri Mulyani has commented that a reduction of income tax will apply to the interest of time-deposits both in local and foreign currencies deriving from export revenues.
However, exporters who do not keep their export earnings domestically may be barred from moving their goods overseas as this would lead to capital outflows and a depreciation of the local currency as witnessed in the 1998 Asian Financial Crisis. A scenario that President Joko “Jokowi” Widodo has reaffirmed to 40 local exporters in July that the country is looking to avoid.

Mr. Satria Sambijantoro, an economist at Bahana Securities, has said that by retaining export revenues within the country, foreign exchange reserves can increase and this will prevent capital outflows from Indonesia in the future. With the change induced by the new stimulus package, foreign ownership in 54 business sectors, including the steel, chemical and petrochemical industries can now be increased to 100 percent, which is a drastic increase from the present 30 to 67 percent ownership allowed. This reflects the 2015 policies that were made to facilitate foreign investments and complements the last stimulus package that was introduced in August last year, which had an aim of increasing foreign investment. Regarding this, Coordinating Economic Minister Darmin Nasution has said, “We cannot address current account [deficit] issue[s] only. That’s important, but not enough. We must formulate policies to give investors confidence and allow capital growth.”

Although, the country is still lagging behind President Joko’s 7 percent growth target, the central bank has projected that the economy will grow by 5.1 percent this year, compared to last year’s 5.07 percent. This follows the government projection in August that the country’s economic growth will be 5.18 percent this year. Currently, Indonesia has been struggling to stabilise its fluctuating currency as well as the loss of confidence amongst investors. Centre of Reform on Economics Indonesia Executive Director, Mohammad Faisal, has said that with the United States intensifying efforts to boost its own economy, including adopting a highly domestically centred monetary stance, capital has been diverted away from emerging economies like Indonesia. He has further commented that, “All emerging markets are affected by shocks from the US, but our currency depreciation is among the deepest.”

Despite an increase in the value of the rupiah since early November, analysts have warned that risks remain on the horizon, especially for imports that traditionally spike during the year-end holidays as depreciations might contribute to a higher current account deficit. A trend that was observed in October when the Statistics Indonesia posted that deficit figures had reached US$1.82 billion which was the country’s second highest deficit figures in 2018 and have led to a weakening of the rupiah.

Last week, the Bank of Indonesia (BI) raised its benchmark rate by 25 basis points for the sixth time this year, to 6 percent. This is aimed at protecting the value of the rupiah in anticipation of a potential fourth hike this year in US rate, which will likely occur in December. BI Governor, Perry Warjiyo, has argued that with interest rate increases, along with instruments to control imports, the current account deficit can be narrowed to 2.5 percent of GDP next year. Although this year, the central bank estimates the gap will remain below 3 percent.

Experts have projected that the strengthened bilateral ties between Japan and Vietnam as well as Vietnam’s high economic growth and enhanced business environment will attract an influx of Japanese investments.

During Vietnamese Prime Minister Nguyen Xuan Phuc’s recent visit to Japan, wherein he met with Japanese companies such as All Nippon Airways Co., Ltd, AEON Co Ltd., Mitsubishi UFJ Financial Group, Mitsui and Mitsubishi, sentiments were strong on the part of the Japanese investors regarding their interest in investing in Vietnam. With Japanese companies stating that they have plans to invest billions of US dollars in Vietnam, across a diversity of sectors.

Seiji Imai, Head of Mizuho Bank for Asia and Oceania has also commented that Vietnam is the first destination for overseas investments in Japan and the country could be experiencing a new wave of investments from small and medium Japanese enterprises with advanced technologies that are looking to enter the domestic market. Furthermore, he believes that the country will experience two waves of investments from Japanese firms with the first wave being attributed to large manufacturing companies and the second to follow shortly thereafter.

Umeda Kunio, the Japanese Ambassador to Vietnam has told the local media that many Japanese companies are very interested in conducting business in Vietnam in areas such as urban development. This can be witnessed with projects in the northern part of Hanoi as in the case of the the Binh Duong project, subway route No.1 in Ho Chi Minh City, and subway routes 1 and 2 in Hanoi.

Currently, Vietnam ranks as the third country in a recent survey on the overseas deployment of Japanese manufacturing companies by the Japan Bank for International Co-operation, and second in the same survey if only small and medium companies are taken into consideration as observed by Mr Kunio.

In a survey conducted last year by the Japan External Trade Organization (JETRO), up to 70 percent of Japanese companies that are currently operating in Vietnam have expressed an interest to expand operations within the country, which is a relatively high percentage compared to other countries in ASEAN. Additionally in a Japanese survey questioning participants about countries and territories for potential expansion agendas, the number of companies choosing Vietnam has been observed to increase over three consecutive years.

According to Mr Kunio, the attractiveness of Vietnam as an investment destination can be attributed to its market potential, relatively low cost yet diligent workforce and political stability. Based on numerous economic forecasts, Vietnam’s economic growth is projected to remain high in 2018, and Japanese investment into Vietnam this year is also expected to be corresponding high. A trend that is also backed by reports from the Foreign Investment Agency.

As of 20 September this year, Japan had 3,900 valid investment projects that are worth a total registered capital of US$55.78 billion in Vietnam. Similarly, up till September of this year, Japan has been recorded as Vietnam’s largest foreign investor, with total investment capital of US$7 billion.

ABB has built a high voltage gas-insulated switchgear (GIS) manufacturing facility in Tangerang, Banten. The facility which was inaugurated by Industry Minister Airlangga Hartarto during its opening, is projected to have 170 kilovolts of gas-fueled electrical panels that will be utilised to distribute electricity from power plants to end users such as factories, housing complexes and commercial areas in order to feed increasing demands for power.

As mentioned by Minister Airlangga Hartarto during his inauguration speech, GIS demand in Indonesia is projected to increase to 150 sets annually as the country works to attain a power capacity of 35 gigawatts and 46,000 kilometers of network transmission by 2019. Claudio Facchin, president of ABB’s power grids division, has also said, “during the early stages of operation, the plant is expected to fulfill around a third of Indonesia’s GIS demand” and it is expected to increase its capacity by around 6.9 percent per year, with the potential to have its products exported to meet global demand.

Additionally, through this facility, ABB will not only help to create jobs and contribute to Indonesia’s FDI, the company could also help to sustain local auxiliary industries as a 2012 legislation has mandated that all power infrastructure developments in the country has to source a portion of its components locally. This facility in Tangerang is the fourth plant in Indonesia that ABB has opened in the past three years as part of a US$30 million investment plan and its contains approximately 25 percent local content for its components. This exceeds local government requirements of at least 14.3 percent local content for high voltage GIS facilities. Minister Airlangga Hartarto, has commented that, “by establishing this plant here in Indonesia, ABB is enabling the local manufacturing industry to contribute more to the national GIS demand.”

VIETNAM: According to economists from Standard Chartered, Vietnam’s GDP is expected to continue growing and is projected to reach seven percent in 2018, making it the fastest growing ASEAN economy for the year. Despite a small projected depreciation in the VND in early 2019, the growth in the country’s economy is expected to continue, particularly within the electronics manufacturing sector, and the VND is expected to end 2019 with a stronger finish than the USD.

This growth in GDP can be largely attributed to an increase in electronics manufacturing as well as contributing factors such as a growth in the agricultural industry and rising consumer demands. Based on Standard Chartered’s most recent marco economic research report, the country’s manufacturing industry is scheduled for another year of double-digit growth with a strong positive outlook for electronics exports as well as the potential for a trade surplus. This is further enhanced by strong FDI inflows which are projected to be valued at US$17billion per year from 2018 to 2020.

Vietnam’s services sector, which comprises about 40 percent of the economy, is also expected to grow in the second half of 2018 after its increase by seven percent in the first half of the year. While the growth in the business process outsourcing (BPO) sector, due to the presence of a educated, young and low cost labour force, will also serve to support the services sector.

Meanwhile, The World Bank has retained its GDP forecast for Vietnam to be 6.8 percent in 2018 while the Asian Development Bank has reduced the figure to 6.9 percent from its prior projection of 7.1 percent.